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The Franchise Memorandum

Posts from November 2013 - Issue 174.

The United States District Court for the District of Maryland recently granted in part and denied in part a franchisor’s motion for a preliminary injunction against a terminated individual franchisee, but declined to enjoin the franchisee’s corporate operating company. Ledo Pizza Sys., Inc. v. Singh, 2013 U.S. Dist. LEXIS 153110 (D. Md. Oct. 24, 2013). After being terminated for failing to pay past due royalties and fees, Singh, a former franchisee of the Ledo Pizza chain, opened a competing pizza franchise at the same location as his former Ledo Pizza restaurant. Ledo filed a ...

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A federal court granted a franchisor’s motion to dismiss for improper venue in Musavi v. Burger King Corp., 2013 U.S. Dist. LEXIS 154467 (C.D. Cal. Oct. 25, 2013). After Burger King terminated Musavi’s franchise agreements, the parties entered into a Limited License Agreement that permitted Musavi to operate the terminated franchises for a limited time until they could be sold. After the franchises failed to sell, Musavi filed suit in California, where his franchises were located, and challenged the enforceability of the Agreement. Burger King moved to dismiss or transfer ...

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Posted in Class Actions

A class action settlement has been approved in Swift v. DirectBuy, Inc., 2013 U.S. Dist. LEXIS 152618 (N.D. Ind. Oct. 24, 2013), in which current and former member-customers of buying club franchisor DirectBuy sued the company alleging that they did not enjoy savings commensurate with their membership fee. The plaintiffs alleged that DirectBuy failed to disclose material information regarding the true prices for its products and the fact that DirectBuy received payments from vendors, manufacturers, and suppliers but did not pass along these savings to members. After the court ...

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In BP West Coast Products LLC v. SKR, Inc., 2013 U.S. Dist. LEXIS 151764 (W.D. Wash. Oct. 22, 2013), a federal court in Washington dismissed a gas station franchisee’s claims for fraud and negligent misrepresentation, and its claims under the Washington Franchise Investment Protection Act and Washington Gasoline Dealer Bill of Rights Act. The claims were based on BP’s allegedly inaccurate statements regarding the estimated gross margins that the franchisee could earn on the sale of gasoline and other products.

In dismissing the claims, the Washington court noted that for both ...

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Although the Minnesota Franchise Act (“MFA”) may preclude an out of state franchisor from using a forum selection clause to prevent a Minnesota franchisee from filing a lawsuit in Minnesota, a New Jersey federal court ruled recently that the MFA does not mandate that all litigation involving Minnesota franchisees must be venued in Minnesota. In Ramada Worldwide, Inc. v. Grand Rios Investments, LLC, 2013 U.S. Dist. LEXIS 152140 (D.N.J. Oct. 23, 2013), Ramada initiated litigation in its home state of New Jersey against a Minnesota-based franchisee. The franchisee argued that ...

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The United States District Court for the Middle District of Florida also granted 7-Eleven a preliminary injunction in 7-Eleven, Inc. v. Kapoor Brothers Inc., 2013 U.S. Dist. LEXIS 149063 (M.D. Fla. Sept. 13, 2013). The court found that, because of this franchisee’s incurable conduct, the franchisor did not have to comply with franchise agreement provisions requiring advance notice of the termination and the opportunity to cure. Fairly soon after Kapoor Brothers entered into two franchise agreements, 7-Eleven discovered that Kapoor Brothers had underreported sales by ...

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Franchisor Ace Hardware Corporation recently prevailed on appeal—as it had in the lower court—against claims that it had committed fraud in selling two franchises. Avon Hardware Co. v. Ace Hardware Corp., 2013 Ill. App. LEXIS 743 (Ill. App. Oct. 28, 2013). The circuit court had dismissed both franchisees’ claims because cautionary language in Ace’s pro forma and UFOC documents rendered reliance on the franchisor’s alleged statements immaterial as a matter of law. The Illinois Court of Appeals affirmed.

The appellate court held that Ace Hardware’s documents did not ...

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During the same October 31, 2013, MSBA Franchise Committee meeting, Commissioner Lubin and Deputy Commissioner Cantone reiterated their pledge to form an advisory committee to review their office’s policies and procedures, as well as the state’s franchise regulations, with the intent of streamlining the renewal process. The first meeting of that group is being planned for December.

Commissioner Lubin also announced that their office had agreed that it would no longer require a franchisor’s financial statements to be current within 90 days when filed in Maryland. In an ...

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There have been further developments following the October 3, 2013, meeting of the Maryland State Bar Association’s Franchise Committee, at which Jon Cardin, a member of the Maryland House of Delegates who also is a candidate for Maryland Attorney General, presented proposed revisions to several sections of the Maryland Franchise Law. (Under the proposal, the time the Attorney General’s office would be allowed to process franchise renewals and amendments would have been substantially curtailed, Maryland based franchisors would be exempt from compliance with the law when ...

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The United States District Court for the Eastern District of New York last month entered a preliminary injunction against franchisees that diverted profits from their five 7-Eleven convenience stores in violation of their franchise agreements. 7-Eleven, Inc. v. Khan, 2013 U.S. Dist. LEXIS 146696 (E.D.N.Y. Oct. 10, 2013). 7-Eleven terminated the franchise relationship, without giving the franchisees an opportunity to cure, after an investigation revealed that the franchisees had repeatedly underreported their sales and defrauded 7-Eleven out of royalty payments over a four ...

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About this Publication

The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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